Suntory created a $900-million-a-year hit soft drink by meditating over mistakes.

By Mariko Mikami

September 1, 2005

(Business 2.0) – For three years Naoto Okinaka and his colleagues at Japanese beverage maker Suntory were known as a bunch of losers. That's because they were the brains behind Jukucha, a megaflop of an iced tea that sullied Suntory's name in a high-stakes category: Iced tea is an $8.8 billion business in Japan that accounts for 28 percent of soft-drink sales. With orders for Jukucha flagging after its 2001 launch, Okinaka and his eight-person team traveled to Kyoto and meditated through their shame at a Zen temple. "If we fail again," one team member recalls thinking, "my existence will have no value."

Perhaps it's not healthy to be so hard on oneself, but as Okinaka learned, success is sometimes found by steeping in one's failures. Just two years later, Okinaka would launch the most successful new product in Japanese soft-drink history. But first he would have to think long and hard about what went wrong with Jukucha, and he would have to lead his team to a deeper understanding of what people really want from a bottle of tea.

Founded in 1899 as an alcoholic beverage maker, Suntory built its name in soft drinks by introducing Japan's first unsweetened iced tea--canned Chinese oolong--in 1981. But in 1996 a competitor called Ito En countered with Oi Ocha, a bottled green tea. Until then, Japanese had considered green tea something they brewed from scratch, but with fewer companies requiring female employees to perform tea service and more salarymen working on the road, Oi Ocha was a smash hit. Suntory tried for years to fight back with its own green teas, but none caught on.

Anxious to reclaim iced-tea dominance, Suntory returned to its Chinese tea roots. Okinaka, general manager of Suntory's food and beverage unit, imported from China a high-end aged tea called Pu-erh. He named it Jukucha, which means "mature tea." In hindsight, Okinaka admits that he wasn't thinking about consumers at all. "People didn't want Pu-erh tea," he says. "We just wanted to sell it to them."

A New Leaf

At the Zen temple, Okinaka renamed his team NZ, a cryptic reference to the Japanese navy's do-or-die mission in the early-20th-century Russo-Japanese war. "I knew this would be our final battle," he says.

This time the NZ team immersed itself in the lives of its target customers--30- to 60-year-old working males. A 42-year-old survey respondent said he sees green tea, in particular, "as part of my life, like the air." Male office workers, the team found, drink tea at their desks, so they prefer bottles that convey status, the way cuff links or a briefcase can. The NZ team even read novels favored by the demographic. "I learned that while Japanese men have a serious side, they are also childlike and want to be taken care of," Okinaka says. "Deep down they want green tea the way infants want their milk bottles."

The ill-fated Jukucha sported modern packaging and emphasized superior manufacturing technology. Okinaka decided that his new tea should ooze tradition and deliver reassurance. For the tea itself, he used green leaves from a venerable 200-year-old Kyoto teahouse. He named it Iemon, after the teahouse's founder, and created TV ads that feature a young, industrious Iemon grinding tea with traditional stone tools as his beautiful, kimono-clad wife beams with pride. Okinaka developed a plastic bottle shaped like a bamboo flask, a traditional vessel. He also experimented with packaging. "We found that lighter colors make consumers expect milder flavor, so the same tea tastes stronger in a light-colored package," he says. "We had to test many bottles and flavors to get the right combination."

Redemption

The Japanese iced-tea market is so competitive that if convenience stores don't see sales of a new product spike during a three-day trial, they don't order more. Okinaka had projected sales of 2 million cases a month, but says Iemon sold more than that during its three-day trial in March 2004. By April 2005, Iemon had sold about 50 million cases, a first-year record for a Japanese soft drink. Suntory expects revenue from Iemon this year to reach nearly $900 million, or 23 percent of Japan's bottled green tea market.

Okinaka invested heavily to build a clean room for brewing Iemon, because the typical method for killing bacteria--heat pasteurizing--also impairs taste. But Suntory officials don't talk about it much. "We used to stress the technology behind our products," says Hideki Maki, the NZ team member who came up with the clean-room idea. "But people don't care about that. They just want to relax and drink some tea."